There were two very different Op Ed pieces in the New York Times on July 31, 2010. On the one hand, the “strategic deficits” man, David Stockman is trying to ramp up a bit of advance publicity for his upcoming book on the financial crisis which I hope goes out to the remainder desks shortly after being published. He is advocating balanced budgets and “sound money” – which is neo-liberal speak for austerity and rising unemployment. On the other hand, Robert Shiller is advocating a “just do it” approach to recovery where the “do it” is defined in terms of public sector job creation. I find the latter argument compelling when you look at the data and what it is telling us about the American lives that are being destroyed by the policy vacuum. I am also sympathetic to Shiller’s line because sound macroeconomic theory points to that solution. Stockman displays an on-going ignorance of macroeconomics although some of this views resonate with me in a positive way.

Today is actually the much promised shorter Friday blog. I had to write an Op Ed piece today for the Fairfax press on my recent evidence before a House of Representatives Committee of Inquiry into regional skills shortages. So I thought I would expand on that Op Ed a little for this blog. In April, my research centre – CofFEE – made a formal submission to this Inquiry. In June I gave formal evidence (see below) and some interesting things came up. A conservative MP on the Committee thought I was insane for suggesting that the public sector might consider creating employment given the high degree of labour underutilisation we have in this country. Some regions have 50 per cent of their workforces idle! Anyway, today I summarise our submission and provide some text from the official government hansard (record) of my evidence.

Today I have reading a swag of literature which attempts to explain cross-country differences in change in unemployment and average duration of unemployment in the current recession. This issue has been topical in the US recently as the US Senate debates whether to extend unemployment benefits. The mainstream economics view is that the previous assistance caused the unemployment problem and a decision to extend the assistance will worsen it. However, you have to wonder what planet the proponents of these views are on. The overwhelming evidence is that the longer the recession the higher average duration of unemployment becomes and the larger the pool of long-term unemployed. The solution is always to stimulate employment growth. That simple truth is always lost on the mainstream. As you will see, among the proponents of the erroneous view that benefit provision has caused the worsening of the unemployment situation are researchers at JP Morgans. I would like to think that if the US government hadn’t bailed those bums out then these researchers might have been unemployed themselves. They could certainly use a dose of harsh reality.

In Sunday’s New York Times, the Room for Debate series focused on one of my favourite topics – Should Public-Sector Jobs Come First?. The debate turns out to be very disappointing because even the so-called progressive offerings fall short of advocating an effective solution to the jobs crisis. Only one implies an understanding that the policy design proposed should not be compromised by an errant understanding of the way the fiat monetary system operates. Proposals that assume there is a financial constraint on government will almost certainly be second-rate. The debate could have been energised had the NYT sought expert opinion from those that are developing and implementing large public sector employment programs.

The OECD, the organisation that has spearheaded the abandonment of full employment in all its member countries since releasing the supply-side blueprint in 1994 – The Jobs Study, has now finally realised that things are very bleak in labour markets across the World and is saying more action is desperately needed. All their rhetoric in the last decade about making labour markets resilient and flexible through active labour market programs has not apparently stopped the major economies from going belly up.

There have been several related reports and articles in the last few days about adjustments that are going on as the economy goes into recession. New data is also available to shed light on movements in wage costs and labour productivity which can help us better understand what is going on at present and provide comparisons with the now perennial question – is this recession different to that experienced in 1991. Today I decided to write about these matters as an on-going investigation into what is happening out there in the labour market. This is sort of my other main interest in economics alongside the development and explication of modern monetary theory. Today we find that the neo-liberal dumbing down of our labour market may have saved a few jobs – but at what cost!

Current problem: jet lag. I keep saying to myself – 1 day for every time-zone. I have a week to go! Today I have been in Brisbane discussing the Functional Economic Regions geography which I have created to improve spatial analysis in Australia. The new geography is now being used by other social scientists because it represents an improvement on the standard geographical boundaries that ABS uses to disseminate regional data. I might write a blog about this one day although it is very technical and rather dry. But life as a researcher is “10 per cent inspiration and 90 per cent perspiration” although for me the 10 might be a little lower! After all I am a stupid modern monetary theorist! But today’s blog is about the Compact with Retrenched Workers – the latest policy joke emanating from Canberra.

I saw this in The Australian (on-line) front-page today – “POLL: Do unions have too much power?” So the campaigns are emerging: deficits, debt and union power. Seems like we are back in the 1970s when the conservatives last ran the union power campaign. The topic is apposite given the Government’s reaction last week to union requests to eliminate some of the nasty elements that remain from Work Choices. I laughed when I saw the poll – who are they trying to kid. Anyway, the current Government is playing hard cop with the union movement exploiting the lack of capacity of the latter to fight back.

There is a parable that the Australian Government still doesn’t understand – its the 100 dogs and 95 bones story that all children should be told at an early age. I will tell the story presently. I mention the parable because once again it seems that a major Government initiative designed to reduce disadvantage arising from unemployment will be poorly conceived and constrained by a reluctance of the Government to jettison the destructive neo-liberal approach that has dominated labour market policy for the last few decades. I am referring to today’s announcement from the Government that our youth will all be working, studying or training or face a loss of income support.

The unemployed cannot find jobs that are not there! I have written about that topic extensively. So today I have been examining what vacancy data is telling us about the labour market. The relationship between unfilled job vacancies and unemployment (the so-called UV ratio) is well entrenched in economics. The UV ratio is a good indicator of the state of the labour market because it tells us (approximately) how many people there are for each unfilled job. Of-course, it understates the degree of slack because it fails to include underemployment. Anyway, you can also determine whether there are significant supply-side issues going on which would require supply-side policies. As you will see in the following graphs – it is all demand side! Which tells us, yet again, that job creation is required.

Sydney Morning Herald journalist Adele Horin article in the SMH today – Here’s a stimulating idea: create jobs – challenges the Federal Government to get it priorities right. She writes:

If employment is the primary concern, there are surer, more direct ways than cash payments to ensure bosses hire rather than fire. If not now, a debate on the hoary old topic of direct job creation may be just around the corner.

The ABC Radio National Interest programme ran a segment last night about the unemployed! Yes, they are the ones that actually lose their jobs in an economic downturn and bear the brunt of the adjustment. The programme was interested in why the $42 billion package announced by the Federal Government had very little in it…